Accounting · Standard Costing

Consider the following statements regarding standard costing principles: Statement 1: Standard costing is an integrated technique of accounting which involves the preparation of standard costs and their application to determine the cost of products, with the primary objective of serving as a basis for cost control and accounting simplification through the valuation of inventory at standard costs. Statement 2: The process of setting standards requires a multi-disciplinary approach involving the production manager for quantity specifications, the purchase manager for price estimates, the personnel manager for labor rates, and the accounting department for the final synthesis of these elements into a standard cost card. Statement 3: Ideal standards represent the level of performance attainable only under the best possible conditions with no provision for machinery breakdowns, shrinkage, or human fatigue, and while they provide a theoretical goal, they are often criticized for being demotivating as they are rarely achieved in practice. Statement 4: Basic standards are those which are established for an unaltered period of time, often years, and are primarily used to observe trends in cost over a long duration rather than for immediate cost control or performance measurement in the current period. Statement 5: Attainable standards are those which can be reached under normal efficient operating conditions with reasonable allowances for normal spoilage, machine downtime, and human breaks, making them the most effective for motivating employees and serving as a basis for budgeting. Statement 6: Variance analysis must be followed by a corrective action plan, as the mere identification of a variance is an accounting exercise, whereas cost control is a management function that requires addressing the underlying technical or administrative cause of the deviation. Statement 7: In a comprehensive standard costing system, the disposal of variances at the end of the year can be done by either transferring the net variance to the costing profit and loss account or by prorating the variances between the cost of goods sold, finished goods inventory, and work-in-progress inventory. Which of the following represents the most accurate evaluation of these standard costing principles?